Top of Wallet

Posted on by Chief Marketer Staff

With the average American household belonging to 12 different loyalty programs, marketers are looking for new ways to stand out. But it’s not easy.

“The market is very saturated,” says Shea Long, vice president sales and marketing for Maritz Loyalty Marketing. “We’ve kind of reached our capacity.”

Linking Loyalty to Lifestyles

What’s hot this year? Merchant rewards.

Marketers are partnering with retailers to better target customer segments with awards that match their lifestyles.

Take American Express. Its First Collection rewards program for affluent consumers lets Platinum and Centurion cardholders redeem points for high-luxury items. That includes everything from gift certificates at Tiffany & Co., on-demand private jet service and premium wine to a yearlong lease on a Lamborghini convertible and a Steinway Living Room Grand Piano.

The program, which launched last November, includes partners like Neiman Marcus, Eos Airlines, Mikimoto and Bergdorf Goodman. It’s the premium level in a new reward tier structure American Express is about to roll out to its loyal cardholders.

The company’s initial tier, Membership Rewards Express, a free offering, lets cardholders choose from a variety of travel, retail and dining rewards. The next level, Membership Rewards, is a fee-based program that includes first-tier benefits, higher-end shopping and dining partners and the option to transfer points to other loyalty programs.

The new structure gives cardholders a reason to stay loyal and the incentive to upgrade to other reward levels, the company says.

“[Marketers] are looking to reach out to specific retailers whose brands match up well with their customer demographics,” Long says. “They are becoming more and more popular.”

Rewarding Experiences

Other companies are using the “Wow” factor through experiential, one-of-a-kind and money-can’t-buy rewards. While that trend continues to grow in popularity, less than 1% of experiential awards are actually redeemed, Long says.

“These things have a very high point value,” he says. “You got to be in the ultra-high-spending category to consider redeeming. It’s more about the marketing sizzle than driving behavior. This is not mass market, but it definitely gets everyone’s attention.”

Such rewards could be a hot air balloon ride or a test drive in a NASCAR-style car.

“At the end of the day, it creates a perception that you have a card in your wallet that you can get a cool experience with if you want it,” Long says.

The Gift of Choice

There is also greater flexibility in choosing awards.

More and more firms are expanding their roster of partners and options to give people a say in how their loyalty should be rewarded.

Canada’s Air Miles program, for instance, lets members collect rewards miles for shopping at more than 100 sponsors, including Bank of Montreal, Shell, Safeway and The Shoe Co. Eight hundred options are available, including movie tickets, gift cards, Disney World tickets and electronics merchandise.

“Marketing as a whole is becoming customer-centric,” says Caroline Papadatos, chief knowledge officer for Air Miles Reward Program. “The customer calls the shots. Some people like to earn and burn and other people like to save for a cruise. The idea that consumers pick their own reward from a broader program just makes sense. It puts the control in the hands of the consumer.”

And unlike other loyalty offerings, under which customers earn points and miles from different clubs, Air Miles has one currency to ease redemption and earning potential.

With that structure, members get to a reward faster.

“Everyone has a loyalty program today,” says Sheryl Kingstone, director, customer-centric strategies, for Yankee Group. “You’ve got your gas card, your points card, your frequent flyer card. But unless they are part of a true ecosystem, they will not be as successful because it is fragmented.”

When it comes to rewards, people often think of them as an alternative to cash and want to treat themselves to something special.

“What you see in those reward programs is an acknowledgement to some of ‘just show me the money.’ Other people are saving up and like the surprise of the bonus,” says Lisa Bradner, senior analyst for Forrester Research. “It’s all about choosing.”

The program, which started in 1992, has more than 9 million active households and 97% brand awareness. Last year alone, Air Miles handled more than 5 million individual redemptions.

And with a maturing industry, choices are crucial.

“The market is maturing and marketers are trying to figure out how to stay one jump ahead,” Bradner adds. “Consumers have gotten very, very smart about managing their benefits and programs. Not everyone wants the same thing.”

Sign Me Up

The popularity of loyalty programs isn’t waning.

In fact, U.S. membership has jumped to 1.3 billion, according to a recent Colloquy Loyalty Census. That’s up 35% from 973 million in 2000.

What’s fueling the growth? The ease of program sign-up. What’s more, specialty retail, the third largest loyalty membership category, is contributing to the sizeable increase. Loyalty newcomer Best Buy, for example, launched its Rewards Zone program in 2003. Four years later, the program has grown to include more than 7 million members.

On top of that, emerging categories are adding to the frenzy, such as financial institutions offering rewards for new checking accounts.

While the loyalty industry continues to boom, the number of people who actively participate in them is falling short. People are active in only 40% of the ones they belong to, or 4.7 clubs.

“This really is a wake-up call to the industry,” says Kelly Hlavinka, Colloquy director. “The key is for those companies with loyalty programs to use this growth as a catalyst to evolve new strategies.”

Building a network

How can marketers keep their brand top of mind? By freshening their programs and re-evaluating their marketing approach.

“One of the key things people have to ask themselves about programs they have put out there is, ‘Is the value proposition compelling enough for consumers?’” Hlavinka says. ‘“Is it interesting enough that they will hit your program Web site?’ All of those are indications of whether a customer really understands the value.”

Companies are also harnessing the power of a network.

For instance, Huggies is tapping into the emotional connection of moms and moms-to-be via its Baby Network. The online community includes pregnancy advice, interactive tools, special offers, articles, radio interviews and products to help moms connect with others.

Programs like Huggies Baby Network “go beyond traditional rewards and recognition,” Hlavinka says. “Marketers are using the Web portal to allow customers to get access to special information and connect with one another in a community.”

Here’s another tip. Companies should look at consumer data to keep customers loyal.

“You can market it to death and not have it be a success,” Yankee Group’s Kingstone says of loyalty programs. “The biggest issue gets back to maintaining loyalty with your program. You are creating this loyalty program for a reason. The point is to get more insight into the customer so you make them more loyal.”

STATE OF DEVOTION

  • 1.3 billion Americans enrolled in loyalty programs
  • up 35% from 973 million in 2000
  • average household belongs to 12 loyalty programs
  • but members active in only 40% of them
  • financial services, grocery and specialty retail areas make up 57% of all loyalty program membership

For more articles on incentives, go to http://promomagazine.com/incentives

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